The Great Divergence – how did income inequality get so bad?

As the article discusses, in 1915 during the age of the Robber Barons the top 1% controlled 18% of the wealth in the US. Today it’s closer to 24%. For whatever reason, the widening gap and actual opportunity to move upward has barely been noticed by most Americans. There is still the widespread belief that the US is the land of opportunity even though it’s no longer at the top or even near the top of the list of countries where this is possible. Maybe part of the problem is that we grow up repeating the myth that because we’re Americans, we have the best. That certainly was part of the problem in the health care debate where some hold firm to the belief that the US has the best health care system in the world.

There’s a follow up to this very interesting discussion (that address race and sex) but for now, here’s part one of The Great Divergence. It’s worth reading it all if you have the time. Meanwhile, tell me again why any Democrat is afraid to make this part of the discussion? Even worse, why would any Democrat consider extending tax cuts that help feed this problem?

The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade’s end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the “Great Divergence.”

It’s generally understood that we live in a time of growing income inequality, but “the ordinary person is not really aware of how big it is,” Krugman told me. During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth—the “seven fat years” and the ” long boom.” Yet from 1980 to 2005, more than 80 percent of total increase in Americans’ income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.

Chris in Paris
An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.